Duller Prospects for Sharper Image : Competitors Cut Into Market for High-Tech Adult Toys
Sharper Image, the San Francisco-based purveyor of talking scales, answering machines for portable phones, space age pogo sticks, electronic talking parrots and other yuppie toys, suddenly seems to be losing its edge.
The upscale retailer, which has 62 stores nationwide, plus a big catalogue-sales division, is working its way through a bout of financial trouble. Some analysts say the problems may be the result of Sharper Image’s success over the past decade in establishing the market for high-tech adult toys, which appeal primarily to upscale men age 25 to 44, according to a recent marketing study conducted by the company.
Some analysts say the gadget market established by Sharper Image founder and President Richard Thalheimer is now filled with competition from department stores, electronics outlets and other catalogue companies, leading the firm to report losses in its fiscal third-quarter and nine-month periods, which ended Oct. 31.
Sharper Image said it lost $233,000 in the third quarter on revenue of $36.6 million, in contrast with a profit in the year-ago period of $257,000 on revenue of $33 million. In the first nine months of the fiscal year, the company lost $2.1 million on revenue of $107.8 million; a year ago, it earned $551,000 on $88.6 million in revenue for the same period.
Soft Market, Weaker Dollar
Robert W. Schultz, the company’s vice president and chief financial officer, blamed the poor results on a soft fall retail market, a temporary lapse in strict financial controls because of personnel changes and the weakened dollar--70% of the company’s products are imported, mostly from Japan.
“Sales were below what we expected, and we’re disappointed with sales for this time period,” Schultz said. “It was a combination of several things . . . (and) there was a general feeling that the soft sales were caused in part because, while we had some good products in there, we did not have enough new products.”
But one analyst said Sharper Image is also being hurt because many of its high-tech gadgets can be found more cheaply at other stores.
“The goods that Sharper Image carries are fairly pricey,” said Kenneth Gassman, a retail analyst with Wheat First Securities of Richmond, Va. “If consumers realize they can buy the product for less money, they will. When they started, very few other companies carried their products . . . . . (But) in many cases, the items they carry now are available elsewhere at lower prices; even the department store prices are less than Sharper Image’s.”
Gassman blamed the recent losses on the company’s “failure to differentiate itself” by not making more exclusive deals with manufacturers to ensure that other stores do not carry similar product lines. “Sharper Image will come out with them first, but if you wait three, six months, you will find them in someone else’s store or catalogue for less,” Gassman said.
There is some irony in the increasing market pressure that Sharper Image is facing: The company began opening stores five years ago because it felt the catalogue market was becoming too crowded.
Shift to Store Sales
The numbers tell the story of Sharper Image’s conversion from a catalogue retailer to a store operator. Five years ago, 10% of Sharper Image’s revenue came from store sales and 90% from catalogue sales. This year, Schultz said, 75% of revenue will be from the chain’s 62 stores. Sharper Image had just 13 stores three years ago.
One analyst said Sharper Image’s problems were not a result of its rapid and expensive expansion. Mark Bressler, an analyst with the San Francisco investment firm Hambrecht & Quist, said a summer price increase on several of the company’s most popular products, combined with generally slow retail sales this fall, combined to hurt the company.
“They haven’t expanded too fast,” Bressler said. “One of the problems is that when stores do so well so quickly it is hard to come up with an encore, and that’s hurt them.”
